The online mining website Mineweb covered a recent Deutsche Bank report regarding base metal prices that we felt was of sufficient interest to review.
The main thrust of the bank’s position was that China’s demand for base metals is slowing and this will impact prices in 2009 and 2010. Prices this year have been almost solely driven by demand from China with consumption contracting in much of the developed world and only emerging markets showing any growth in metals consumption. Indeed even the word consumption is debatable as much of China’s headline grabbing buying has been for strategic stockpiles and as such is still sitting in store. Underlying consumption is more modest than buying suggests. The bank believes that as the effects of the stimulus package wear off later this year, and China’s growth slows as dependence on world trade takes a larger percentage of the demand, metals prices will ease.
Specifically Deutsche Bank estimates that China has between 700,000 and 1m tons of excess copper stocks and they are forecasting a 3.9% drop in global copper consumption this year. Consequently, the bank sees prices easing through H2 2009 and H1 2010 a process that has already started with the drop back from last month’s 2009 highs. We would agree, the SHFE arbitrage has recently collapsed and stocks in Shanghai and LME Asian warehouses are set to rise by up to 100,000 tons over the coming weeks in the face of lukewarm demand according to Reuters reports.
Deutsche Bank suggests nickel is going to benefit from a narrowing of the supply surplus as production is finally brought closer to demand after 18 months of cuts with a pick up in stainless production following a prolonged period of de-stocking. The report suggests nickel’s prospects are good once the summer period is over. We are not quite so bullish. Stainless production may pick up later this year or early next but this does not allow for the demand destruction that has reduced the consumption of nickel bearing stainless alloys. In addition, idled capacity is in some cases being brought back on stream and new facilities are coming on stream like Mirabella’s 26,000 ton per annum Santa Rita mine in Brazil which will continue to keep exchange stock levels high. We can’t see much upside for nickel this year or next.
We could be more in tune with the bank on zinc. They say “we are forecasting a 240,000 ton surplus in 2009 followed by a 250,000 ton deficit in 2010 as demand ramps up against concentrate supply constraints.” Prices should follow; the bank is expecting an easing over the summer with prices firming towards the year end and into 2010.
Still on supply/demand Deutsche Bank is also forecasting a 1.75m mt aluminum surplus in 2009 followed by a smaller but still substantial 620,000 ton surplus in 2010. With exchange stocks already at 4.4m mt and the market set to remain in surplus, a significant rise in prices is almost inconceivable. As the bank observes, China re-starts are of crucial importance. demand is sluggish although the country remains a net importer at the moment. That could change if demand softens a little and anymore idled capacity is restarted; if that happens prices could come under pressure.
The bank is somewhat bearish on lead expecting the market to be in slight surplus this year and next, and in the medium term for prices to decline with lead use in automobile batteries. We wonder about this. Surely lead use in automobiles can only increase over the next 2-5 years as car production recovers. According to this assessment, global car production was rising inexorably from the last recession in 2001 at nearly 40m/units per annum to 2007 at nearly 55m/units. This year, it is projected to be nearly 52m units so a return to 54-55m seems reasonable over a 2-3 year time frame. Electric cars with Lithium-ion or metal hydride batteries are not going to make significant inroads into combustion engine sales within that time frame so we are not as conservative on lead. Dramatic rises are out but we expect that like copper, the prices will be firmer this time next year than now.
Lastly tin – the bank observes LME inventory levels have quadrupled over the past six months, hitting the highest level for over three years, from which we deduce they mean 2009/10 prices will be limited on the upside and vulnerable on the downside. However with economic supply sources limited the longer term prospects for the price are upward, just not this year or next.
All in all an interesting analysis, I am afraid we at MetalMiner are never able to accept them at face value so please excuse our footnotes to the originals findings.